The role of risk management is steadily growing, with 62 percent of institutions having an enterprise risk management program in 2012, says risk management and consulting firm Deloitte.
Deloitte's recent global risk management survey, additionally finds that 21 percent of companies are currently implementing an ERM program.
The percentage of institiutions that say they have and ERM program is up from 52 percent in 2012, says Deloitte.
Based on the responses of 86 financial institutions representing $18 trillion in combined assets, the survey finds 72 percent of organizations say they are extremely or very effective at managing risk.
However, only 45 percent of financial institutions say that they have a good handle on their operational risks. More than 80 percent of institutions have implemented some operational risk program by identifying risk types and gathering data on key risk indicators and loss; however, less than half have gone beyond the minimum to standardize risk controls or even insure against operational liabilities.
The report shows that there was “little change” in the percentage of institutions that practice serious operational risk management today since 2010 survey.
“One of the biggest risk challenges facing the industry right now is in the conduct, behavior, and operational risk areas of risk management,” writes the chief risk officer of a large global financial institution in the report. “As a CRO, my focus is on instilling the right mix of culture and controls for the organization to help manage integrity and behavior.”
Deloitte suggests the lack of progress may be that the impact of responding to recent demands on risk management has led institutions to shift their focus to governance, liquidity, and regulatory risk, and away from operational risks.
About half of European respondents say they are extremely or very concerned with managing operational liabilities under Basel II, including clients, products and business practices; external and internal fraud; business disruption and system failures; and execution, delivery, and process management. The Basel framework was designed to implement a risk-based standard of regulator capital while improving the management of operational and other enterprise-wide risk measurements.
North American and British companies are more concerned about operational risks resulting from consumer protection agencies. For example, the Consumer Financial Protection Bureau and Financial Conduct Authority are cracking down on institutions for “miss-selling”, as the report puts it, of financial products including mortgages and credit cards.
Deloitte also found that about 60 percent of institutions expect to increase their ERM budgets over the next three years.
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